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Wednesday, 31 August 2016

Transaction Update, Ausgroup, Future of Singapore's O&G

Transaction UpdateFor the month of August, I have divested the following:Silverlake Axis - Banking on today's price run, I have taken the profits as I think silverlake is just about fairly valued at 4.8% dividend yieldFirst Ship Lease Trust - The MR2 tanker prices have been falling and thus time to sell off.XMH- Sold off for better utilisation of cash.Using the cash, I have started accumulating Ezion at 31, 27, 26 and 22 cents. Please see the "Future of Singapore's offshore"AusgroupAusgroup's financial results was a disappointment. The group has impaired its assets, resulting in a net loss of close to 100mil. However, one thing stood out.http://www.agc-ausgroup.com/images/Prelim_announce_Q4_2016_-_29_August_FINAL.pdfReading, page 6 & 7 of its full year results, it seems DBS has been actively lending money to it on a short term basis. What stands out is that in Q2, the company was already in bad shape for its balance sheet but in Q3, DBS still lent support. Nevertheless, I still think Ausgroup is in serious trouble and is unlikely to be able to repay its bonds and outstanding bank loans.Future of Singapore's OffshoreReading Ausgroup's financials, Krisenergy and Swiber events, to me, it seems DBS is trying to contain the O&G's malaise by extending credit to prevent a contagion effect. However, many of these companies in the O&G sector are over leveraged. In my opinion, there may be further defaults as it is very difficult for our national bank to support all of them.The outlook is pretty bleak as of now with many oil majors slashing capital expenditure. It is going to be difficult for all companies to tide through when there is a fall in orderbook.I have started to sieve out companies which are "too big to fail"; and will have a domino effect. One such company sieved is Ezion, whose debts is in the region of 1 billion. It is one of the largest rig charterer in South East Asia. Doing my own research, I have found one of its recent bonds is uniquely structured with DBS supporting it [see here]. However, I will like to warn my own position stake in Ezion is a risky bet because the banks may just give up on Ezion and let the 1+ billion of debt default with domino effect being felt in the ofshore industry.I highly doubt Swiber and Technics will be the only listed companies we will hear that defaults; despite our national bank's valiant efforts. More default are likely.